Discussion Papers No.

146 • Statistics Norway, June 1995

Thor Olav Thoresen

The Distributional Impact of the
Norwegian Tax Reform Measured
by Disproportionality

Abstract:
This paper focuses on th e measurement of progressivity and the distributional effect of the Norwegian tax
reform of 1992. Progressivity is measured by the degree of disproportionality, which implies that the
burden of taxes is estimated when income units are ranked according to pre-tax incomes. The measure of
disproportionality is decomposed to estimate the influence from different pa rts of the tax system on total
disproportionality. For instance, the measure of the cont ri bution from net taxes can be decomposed into a
tax base effect and a tax rate effect. The results show that the degree of progressivity in the overall tax
system, as measured here, has not been altered from 1991 to 1992, but the decomposition analysis reveals
that the tax base effect is more dominant and the tax rate effect is less dominant after th e reform.

Keywords: Tax progressivity, Income dist ri bution, Disproportionality in the tax burden, Tax reform,
Decomposition of inequality

JEL classification: D31, D33, D63, H24

Acknowledgement I have benefitted from suggestions by Julie Aslaksen, Peter J. Lambe rt and Nils M.
Stolen. I am grateful to Ma ri e Ameberg and Kirsten Hansen for computer assistance.

Address: Thor Olav Thoresen, Statistics Norway, Research Department,

P.O.Box 8131 Dep., N-0033 Oslo, Norway. E-mail: tot@ssb.no
 2
1. Introduction

A conventional definition of a progressive tax system is that the average rate of tax is
increasing with income. The progressivity of a tax system can, however, be described in
several ways. There are two features of a progressive income tax system, known as
disproportionality and its redistributive effect (Lambert 1993a). What divides them is the
reranking of income units, which is necessary to compute the redistributive effect.
Reranking means that income units change places in the ranking of incomes in the
transition from pre-tax income to post-tax income. In the following the progressivity of the
Norwegian tax system before and after a tax reform is measured by the degree of
disproportionality. When measuring progressivity by disproportionality (in the tax burden),
one examines to what extent the rich pay relatively more tax than the poor, when the
income units are ranked according to pre-tax income. By limiting the analysis to
evaluating the degree of disproportionality, I assert that evaluating taxes with reference to
the pre-tax distribution is important, not at least in the governmental decision process to
settle tax rates.

In section 5 the progressivity measure is presented and a method to decompose total

disproportionality into effects from various parts of the tax system, e.g. gross taxes, net
taxes, deductions, is also introduced. The decomposition of disproportionality is based
upon the decomposition qualities of inequality measures and in section 4 the
decomposition of the Gini coefficient is shown. There are important limitations to this
approach, since total income is divided into components in a static and "accounting" way.

The methodological approach is demonstrated by employing income data for the year
before and for the first year after the Norwegian tax reform of 1992. Pre-reform
disproportionality is compared with post-reform disproportionality. The changes in the tax
system in Norway during the last decade have mainly been based upon the same ideas as
tax reforms in other European countries in recent years, involving a broadening of the tax
base, reductions in tax rates on taxable net income and more tax on taxable gross income.'

1Note that income after tax is disposable income. while net income refers to taxable income after income deductions
 3
The most significant changes in the Norwegian tax system were introduced in 1992. The
alterations in the tax system are presented in section 2.

The nominal tax rate structure is progressive both before and after the reform with
marginal tax rates increasing with income. To study nominal tax rates, based on different
bands of gross and net income, has however only limited relevance. Measures of
progressivity are defined in terms of the tax schedule and the pre-tax income distribution
in which the tax schedule operates.

Unfortunately, very few conjectures about the effects of tax reforms can be deduced
simply on theoretical basis. This is both due to the complexity of the tax system and
behavioural effects. The intricacy of the Norwegian tax system can be elucidated by the
number of variables involved, when actual taxes are calculated. For instance the
individuals' family situation, socioeconomic status, deductions, income composition, etc.,
all influence tax payments. Thus, the concept of horizontal equity, implying that identical
persons should be given an identical treatment (taxation), is troublesome in the case of
taxes, because very few people are in a similar situation. Section 3 contains a brief
discussion of the possibility of tax reform predictions and the interpretations of tax reforms
in terms of welfare.

Economic theory predicts that individuals will adjust their behaviour to the new tax
schedule. Some tax reforms are in fact motivated by the aspiration to influence peoples'
decisions, for instance to increase labour supply. Behavioural responses to the Norwegian
tax reform are not discussed in this study. The focus is on distributional effects without
including any labour supply responses, i.e. so-called impact effects. Of course, when the
pre-reform distribution of income is compared with the distribution of income a long time
after the reform, people can be expected to have adjusted their labour supply, their saving,
etc., according to the new tax system in work. In this study short term impact effects are
observed, necessarily including any immediate responses to different changes, but not
analysing these.

Nevertheless, some predictions can be made about the impact of the Norwegian tax
 4

reform. For instance, when the tax base was extended to include profits earned on sales of
shares in 1992, this would presumable lead to relatively larger taxable income for well-off
income earners. When an income component, positively correlated with total income, is
made taxable in a progressive tax system instead of being tax-free, this will, ceteris
paribus, lead to more progressivity, measured by disproportionality.

However, there are reasons to call attention to a pure data problem, when evaluating tax
reforms with data from income tax returns. When analyses of tax progressivity are built
upon income tax returns data (the dominant approach e.g. in the Nordic countries), many
tax-free incomes are not apparent in data before they are subject to taxation. Thus, a
comparison of pre-reform progressivity and progressivity after the reform, might be
misleading because important income components are only visible in the second year. An
intertemporal comparison of tax progressivity might be biased if there are no corrections
for artificial differences in pre-tax income.

A tax-benefit model might be the right tool to deal with data quality problems. Model
calculations make it possible to employ different tax systems on the same data, to separate
the effects from the new schedule alone. Thus, when analysing effects of tax reforms by
using data from income tax returns, the ideal research strategy would be a combination of
analyses of data for two different years and the use of a tax-benefit model to examine the
effects from artificial differences in data. There are only small differences between the
definitions of income from 1991 to 1992, and this study will only use the tax-benefit
model in the comparison of samples of data for two different years, not employing any
simulation techniques. The results are presented in section 7.

There is a whole range of different approaches to methods for distributional assessments.

Non-income differences between households imply that one has to consider differences in
needs, which leads to the question of use of equivalence scales. This issue is discussed in
more detail in section 6.
2. The Norwegian tax reform of 1992

It was argued that the pre-reform Norwegian tax system was both inefficient and had
adverse distributional effects (Norwegian Parliament 1990). It was generally believed that
the new tax schedule will stimulate economic growth through a more neutral treatment of
different investments and will give a more just tax system since it makes tax avoidance
more difficult. The former tax system implied a highly progressive tax rate system, but did
not give a corresponding distributional effect (Norwegian Parliament 1990). The widening
of the tax base and a new tax rate structure was looked upon as a more efficient way to
redistribute income.

Self-employed people were perhaps most affected by the reform. The income from their
business was divided into yield of capital and yield of labour, which generally meant that
a larger part of their income would be taxed as labour income, which is liable to heavier
taxation than income from capital.

The main elements of the changes in the rate structure for 1992 are:

-A flat, proportional tax rate of 28 per cent on net taxable income, implying a reduction
from the pre-reform top level of 40.5 per cent.

-An increase in the standard deduction for tax on net taxable income from 15 to 20 per
cent of gross wages, salaries and pensions and an increase in the upper limit of this
allowance from 10 000 to 27 000 NOK.

-An unchanged contribution rate to the National Insurance Scheme (part of tax on gross
income) of 7.8 per cent for wage earners and self-employed farmers, fishermen and
forestry workers. However, the contribution rate for other self-employed persons was
reduced from 12.7 to 10.7 per cent, while for pensioners the contribution rate increased
from 1.6 to 3 per cent.

-The introduction of the two-tiered top tax (tax on gross income). The first-tier tax rate is
the same as the pre-reform 9.5 per cent, but the second-tier tax rate was set at 13 per cent
and levied on income above NOK 225 000 in class 1 and NOK 252 WO in class 22 . The
top marginal rate on employment income is thus reduced from 57.8 per cent for 1991 to
48.8 per cent for 1992.

Thus, even if the marginal tax rates were reduced, the progression of the tax system is
achieved through an increase of standard deductions and a raise in taxes on gross income.

3. Definitions, predictions and interpretations

It is important to note that the term progression, as used here, refers to a property of the
tax schedule alone, while progressivity is reserved for the interaction between the tax
schedule and the pre-tax income distribution to which it is applied (Lambert 1993a).
Hansen et al. (1992) present figures for both progression and progressivity for Norway in
1991 and the calculations are used to calculate a progressivity index. Figures for
progression can be used to calculate measures of local progression (Musgrave and Thin
1948), as liability progression and residual progression. The difference between
progression and progressivity can also be expressed by the difference between nominal and
effective tax rates (see e.g. Atkinson and Stiglitz 1980, p. 29-30). The focus here is on a
measure for progressivity and how it can be decomposed into contributions from different
components of the tax system.

An income tax may be defined as progressive if a person with a higher income than
another person pays a higher average rate of tax than the other. This defmition is not
entirely correct since the average tax payment is also a function of deductions, and
different non-income characteristics such as family type, the socioeconomic status, the
composition of income, etc. Another possibility is to define progression in terms of the tax
liability for the same person at different income levels: Progression means that the average
tax rate faced by an individual (or income unit) is increasing with income. This can be

2
Married couples with one income and lone parents will normally pay tax according to class 2.
 7
written as

(1) cl 0014 >

[
oraux
dx

The definition above implies that the marginal tax rate must everywhere be larger than the
average tax rate to make a tax system progressive. Essentially, the Norwegian tax system
fulfils the requirement to a progressive tax system. It is piecewise linear with higher
marginal tax rates on higher bands of income. This is not necessarily true if social security
transfers, which are dependent on labour income, are included in the definition of
progression. The "effective" marginal tax (for instance for lone mothers) might be very
high in some income bands and might even contain nonlinear regions, when benefits are
reduced because of labour income.

A tax reform implies that there is a new tax schedule at work and that people may in
principle adjust their decisions to the new scheme.' Thus, when comparing the effects of
taxes in 1991 and 1992, both the pre-tax incomes and the nominal tax rates will be
different. What predictions can be made about the effect of such a reform? And how can
the results be interpreted in terms of welfare?

An important theorem by Jakobsson (1976) and Feilman (1976) confirms the following
relationship between the Lorenz curves for post-tax income, pre-tax income and tax as
long as the rate schedule is progressive, i.e. that the marginal tax rate exceeds the average
tax rate on every income level:

(2) Lx-T z

3
Not everyone has flexibility to vary their hours of work though
 8
where X-T is post-tax income, X is pre-tax income and T is tax. The distribution of post-
tax income is more equal than the distribution of pre-tax income, since taxes are more
unequally distributed than pre-tax incomes. It is assumed that no income unit experiences
negative marginal tax rates or marginal tax rates above 100 per cent. Since the tax rate
schedules are progressive both before and after the reform, one expects to find tax
progressivity both in the income distribution for 1991 and the income distribution for
1992. Most other conjectures about the effects of tax reforms are either built on
equiproportionate growth of pre-tax incomes or an unrealistic relationship between average
tax rates and marginal tax rates (i.e. about measures of local progression) and are less
applicable in real-world situations (see e.g. Lambert and Pfähler 1992).

Any comparison of different income distributions in terms of welfare involves both the
question of levels of income and how the income is divided between income units. Two
different situations are both characterized by the size of the cake and the division of the
cake. Thus, the evaluation of effects of tax reforms might embody a trade-off between real
income growth and "pure" distributional matters. One way to handle this problem is to
employ generalized Lorenz curves (Shorrocks 1983). The generalized Lorenz curve is a
criterion for social welfare in terms of mean incomes and Lorenz curves. As shown by
Kakwani (1984), generalized Lorenz dominance can successfully conclude many pairwise
comparisons of countries, but not all.

In this analysis the focus is on distributional aspects, without considering the size of the
cake before and after the reform. In the generalized Lorenz curve approach, taxation
reduces social welfare unambiguously (Lambert 1993a), which is reasonable when
government spending is not included in the social welfare function. The question of the
cost of the tax burden taxation is, however, extremely difficult and the trade-off between
efficiency and equity is usually better explained by other methodological approaches, for
instance by general equilibrium models. There are, thus, good reasons to focus only on the
distribution of the tax burden in two different situations, without bringing any
comprehensive examination of the welfare implications of taxation into consideration.

This does not mean that the analyses have no normative contents. Using an index of
 9
relative inequality, like the Gini coefficient, implies some notion of an interpersonal
comparability function and, thus, there are normative judgements involved in the
aggregation. In fact, the approach can be thought of as resulting from social welfare
functions (Dalton 1920, Atkinson 1970, Blackorby and Donaldson 1978). However, it is
important to note that we sum over individual income or equivalent income, as income is
assumed to be an indicator of well-being. We do not sum over individual utility functions
or individual expenditures. In terms of Sen (1973) the income-distributional comparisons
are regarded as "non-compulsive judgements", which means that there are good reasons for
the analytical approach chosen, but there might be significant arguments contrary to the
results we produce. For instance, the general perception of inequality in a society might be
different from the degree of inequality aversion embodied in the Gini coefficient.'
Appendix A describes how the generalized Gini coefficient can be decomposed, to
examine how the results are sensitive to the degree of inequality aversion chosen.

As will be shown in section 5 below, there is a close relationship between inequality and
progressivity, and progressivity measures may be given the same interpretation as the
inequality measures, in terms of social evaluation.

4. The decomposition of the Gini coefficient

A single measure for progressivity will only give information about the change in
inequality after the reform, without any specific reference to the new tax schedule in work.
A simple comparison of pre-tax and post-tax incomes is not sufficient to uncover the
consequences of governmental activity on taxes and redistribution (Kakwani 1977a,
Pfähler 1990). The decomposition of total disproportionality implies therefore additional
information about the functioning of the tax system.

When decomposing total disproportionality we apply the decomposibility properties of the

Gini coefficient. As demonstrated by Rao (1969), Kakwani (1977b) and Aaberge (1986)

4
On properties of the Gini coefficient consult Aaberge (1993).
 10
the Gini coefficient can be decomposed. The analyses are based on one specific inequality
measure. Appendix A describes how the analyses can be extended by applying the
generalized Gini family of inequality measures (or the extended Gini coefficient) (Yitzhaki
1983).

It is assumed that total income, X, is the sum of n different factors, Xi

(3)

The relation between the Gini coefficient and the income components' contribution to
inequality is given by the following expression,

n
(4) G=E —y i
1=1

where MI is the ratio between the means of Xi and X, respectively, and yi can be
interpreted as the conditional Gini-inequality of factor i given the units rank order in X. yi
is called a concentration coefficient and measures average correlation between factor i and
total income, conditional on the income units ranked in order of total income. If is
equal to zero, then every household receives an equal amount of factor i and the factor has
a neutral effect. If factor i is positive ( > 0), then yi > 0 means that the upper part of the
distribution on average receives more of the income factor than the lower parts.

This methodology will be used to evaluate the effect of the Norwegian tax reform of 1992
on disproportionality and trace the influences from different parts of the tax system, when
the income units are ranked according to the pre-tax income. There are, however, reasons
to emphasise the limitations of such an approach. As pointed out by Lambert and Pallier
(1992) and Aaberge and Aslaksen (1995) there are important interdependencies in the
 11
components, which limits the interpretations of decomposition analyses. Nevertheless, we
find this decomposition methodology useful when evaluating the effects of a tax reform. It
gives information about how the different parts of the tax system "hit" the distribution of
pre-tax incomes.

5. Measurement of tax progressivity

Following Lambert (1993b) there are two approaches to trace the influence from taxes,
making a distinction between redistributive effects and disproportionality. The two
approaches to progressivity are closely related to each other. First, the redistributional
effect, perhaps the most obvious way to evaluate the effect of a tax reform, is measured by
a comparison of inequality in pre-reform distributions with inequality post-reform
distributions. This approach was used by Musgrave and Thin (1948) to focus on a single
measure of progressivity. In Strom et al. (1993) the same methodology is used to describe
the redistributive effect of the Norwegian tax system. Thus, the redistributional effect is
defined by

(5) R Gx Gy ,

where disposable income or post-tax income (Y) is pre-tax income (X) minus taxes (T). G
refers to the Gini coefficient. This is simply a comparison of the degree of inequality in
the distribution of post-tax income and the degree of inequality in pre-tax income and says
nothing about whether or how pre-tax income units are reranked by introducing the tax-
schedule.

The second approach describes the relation between pre-tax income and the tax burden,
when income units are ranked according to pre-tax income and implies the use of
concentration coefficients. The following index measures the degree of disproportionality
in the tax system (Kakwani 1977a):
 12

(6) D =y T - Gx ,

where IT is the concentration coefficient for taxes (see section 4 for a interpretation of
concentration coefficients). A proportional tax levied upon all income units, will give D=0
in the equation above. The introduction of progression (taxes are increasing in income)
implies that in order to get the same revenue as with a proportional system, income must
be transferred from rich to poor. Hence, disproportionality is a sign of progressivity.

The two measures of progressivity are related (Lambert 1993b) and the fundamental
difference between D and R is the reranking of income units by the redistributive measure.
Reranking means that income units change places in the ranking of incomes in the
transition from ranking of pre-tax income to ranking of post-tax income because of
taxation. Reranking of income units according to taxes is by some authors proposed as a
measure of horizontal inequity and an indication of an unfair tax system. Plotnick (1981)
estimates the degree of reranking or horizontal inequity as

(7) PG -y y ,

which is a comparison of the Gini coefficient for post-tax income and the concentration
coefficient for post-tax income, when the incomes are ranked according to pre-tax income.
Kakwani (1984) demonstrates that there is a link between income tax progressivity
measured by the redistributive effect (equation 5) and progressivity measured by
disproportionality (equation 6), using Plotnick's measure:
 13

(8) R=[g/(1-g)]D-P,

where g = ttritax . (8) can be written as

(9) Gx -Gy = (yT -Gx) -(Gy -y y).

lily

Equations (8) and (9) illustrate that the redistributive effect consists of the
disproportionality measure multiplied with the average tax level ration and an index for
reranking correction. Many empirical studies have ignored the effect from reranking when
analysing redistributive progressivity (Lambert 1993a). But excluding reranking when
calculating the redistributive effect is generally misleading, as displayed by the equations
above, and may lead to biases in the estimates of progressivity measured by the
redistributive effect (see e.g. Jenkins 1988).

By focusing on progressivity measured by the distribution of the tax burden, the

progressivity measure involves just one ranking of income, since incomes are ranked
according to the pre-tax income distribution only. The index

r±
(10) YT --- TY)

expresses disproportionality in terms of a tax level ratio and inequality measures. This
relation can also be derived from equation (9) above by eliminating the measure for post-
tax inequality on both sides of the equation. This results in only one ranking of incomes,
and the redistributive measure of progressivity is transformed to an index for
disproportionality. Disproportionality is here seen as a function of the general tax level and.
a measure for the relationship between total inequality in pre-tax income and the
 14

concentration coefficient for post-tax income. Hence, the progressivity measure can be
expressed as dependent on the actual proportion of the tax burden and the relation between
inequality measures. Progressivity measured by disproportionality increases when the
difference between and inequality in pre-tax income and the concentration coefficient for
disposable income increases, and increases when tax enlarges its share in gross income. A
proportional tax system implies that y r= Gx. 5

Pfähler (1990) introduces some decomposition formulae for the redistributive effect, to
break down the different influencing factors within a tax system. In Pfähler's approach the
total redistributive effect (G x - Gy) is decomposed into tax base and tax rates components
without bringing reranking into consideration. Instead of decomposing the redistributive
effect, the same kind of methodology will here be used to identify different factors'
contribution to disproportionality. Pfähler (1990) does not explicitly bring tax on gross
income into his scheme of analysis. But tax on gross income has become an important part
of the Norwegian tax revenue and both the effect from tax on net income and tax on gross
income will be isolated. This methodology will give a better understanding of the
influence from the different parts of the tax system on the final result. It must be
emphasised that the way total disproportionality is decomposed here, is only one of several
possibilities. The measures developed here can also be further decomposed.

We introduce the following terms and relations, partly from Pfähler (1990):

- gross income, X
- tax-free income (mainly tax-free income transfers), A
- income deductions, D
- total tax-free income when calculating tax on net income, F = A+D
- disposable income, Y
- residual disposable income, YI=Y-A
- tax on net income, NT
- tax on gross income, GT

5 Remember that both y,. and Gx are indices and only give average figures, which in this context means that a tax system may
have progressive or regressive parts even if yr-= G.
 15
- total tax, T=GT+NT
- taxable gross income, XI=X-A
- residual income, RI=XI-NT
- taxable net income, TNI= X-F=XI-D
- residual net income, RNI=TNI-NT
- disposable income, Y=X-T=F+TNI

In figure 1 the same relations and terms are shown in a diagram.

Figure 1. The decomposition of gross income into income components.

A A A

Yl Y D
X
XI RI RNI

GT T TNI

NT NT

By separating different parts of gross income, one can calculate the contribution from
various taxes, income deductions and tax-free incomes to overall disproportionality. The
measure (IT - Gx) is decomposed into various effects in steps shown by figure 2. For
instance, the first step is obtained by rewriting (10), (TT - Gx) = (yr - ) + (yxr Gx). In
this step the effect on total progressivity from the distribution of tax-free income is
separated. Included in tax-free income are child benefits, special housing allowances and
parts of social security benefits.
 16

Figure 2. An overview over the decomposition of disproportionality

- Yxt

YNT-

IT - 7X1 INT YTNI

YT Gx INT

Gx

It can be shown that a measure of the contribution from tax-free incomes to total
disproportionality can be derived by the following decomposition of total
disproportionality

PT'
TT YXI = (YXI YYI)
r'T

and

(12) PA
YXE GX = TA)

(11) and (12) display the division of the overall measure for progressivity into effects from
taxes and effects from tax free-free income components. (12) demonstrates that the effect
from tax-free income on progressivity depends on a tax-free income ratio and the
difference between the total inequality and the concentration coefficient for tax-free
income. If the tax-free income concentration coefficient is larger than total inequality, (12)
shows that the contribution from this income factor will lead to regressivity. (11) yields a
 17

measure for tax progressivity when tax-free income components are deducted from total
income. By adding (11) and (12), (13) is derived, which displays that total
disproportionality can be seen as a result of effects from taxes and tax-free incomes.

(13) ILA
YT GX = (Gi YA)+ (Yin -

In the following it will be shown how (yr -lba ) (equation 11) can be further decomposed
into effects from tax on gross income and tax on net income and how the tax on net
income can be decomposed into effects from deductions and tax rates. A decomposition of
(11) yields the following equations for the influences from tax on gross income and tax
net income:

PR' ,
(14) YNT - I na = VYX1 YRI)

and

PVT
(15) YT TNT (TOT TNT)
ILT

(14) measures the impact of tax on net income. It consists of a net tax ratio and the
relation between the concentration coefficient for taxable gross income and the
concentration coefficient for residual income. Residual income is the part of taxable gross
income that does not end as net tax (confer figure 1 above). If the concentration
coefficient for taxable gross income (I'm ) is large compared to the concentration
coefficient for residual income (yRi ), the net taxes will contribute positively to the degree
 18

of progressivity. (15) provides an expression for the impact on progressivity from tax on
gross income. This relation is different from the others. The contribution from taxation of
gross income is measured relatively to the contribution from taxes on net income. In
effect, (15) expresses how the existence of tax on gross income influences on total
disproportionality in relation to the impact from net taxes. Hence, (YT - liNT ) will be
negative or positive, dependent on how the distribution of gross tax is in relation to the
distribution of net tax. The relative gross tax contribution is a product of the ratio of gross
tax to total tax and the relation between concentration coefficients for tax on gross income
and tax on net income. It follows from the decomposition procedure employed here that
gross taxes have a positive effect on disproportionality relative to the effect from net taxes,
if ÏGT is larger than ÏNT .

Equation (14) can be further decomposed into a "tax rate effect" and a "tax base effect", as
follows:

(16) 1113
Y17411 - 1X1 -- VIX1 - ID ,

and

P'RNI
(17) YNT If ni = - kYTNI
LINT

The rate effect of net taxes is a product of a tax level effect (k m/11NT) and the difference
between the relationship between taxable income and residual net income. The size of yRN ,

depends on how much of the taxable income that ends as tax payments in different parts
of the distribution and therefore (16) can be interpreted as displaying the tax rate structure
of net income taxation. The base effect of the tax on net income arises from the structure
and distribution of tax deductions. Equation (17) shows that a large positive concentration
 19

coefficient for deductions, which means that the richest have the largest deductions, gives
a progressivity reducing effect. Combining (16) and (17) gives the tax on net income
progressivity as a weighted sum of the tax rate effect and the tax base effect, as shown by
equation (18):

(18) ,t, Plug N

ÏNT T Tm - I RNIJ T - T DJ •
ILNT P.m

This completes the decomposition of disproportionality. Generally, the way a measure is

decomposed and how far the decomposition goes, hinges on the problem addressed. It is
important to note that total income is divided into components in an "accounting"
procedure, and that there are important interdependencies between the indices. It is also
worth noting that the relation between net taxes and gross taxes is in the decomposition
procedure is different than the other stages in the approach, since the influence from gross
taxes is measured relatively to the impact of net taxes. In section 7 below, this scheme
will be used to demonstrate changes in the distribution of the tax burden after the
Norwegian tax reform of 1992.

6. Unit of analysis and equivalent income

Analyses of inequality and evaluation of income distributions also involve the question of
methodological approaches to the interpersonal comparison issue. In the following we will
simply assume that persons with the same income are equally well-off. Due to the strong
economical link between members of the same household, the household is our unit of
analysis. Persons belonging to the same household are dependent on each others resources
and even if the data permit studies based on individual incomes, the analyses are founded
on the households' aggregated incomes. Thus, it is implicitly assumed that each member of
the household is equally well-off. As income is measured on the household level,
comparable income must be defined. This is a complicated issue with no widespread
consensus (see, e.g. Coulter et al. 1992a). One approach involves comparisons of income
in money terms for homogeneous groups, but in the following we will apply we employ a
 20
common metric to compare the well-being of household members of different households
of different size.

According to Buhmann et al. (1988) a simple characterisation of the equivalence scale is

given by

(19)

where s refers to the household size. 6 The equivalence scale elasticity, 0, varies between
zero and one. 0=0 implies no adjustment for needs, 03=1 implies income per person. The
larger it is, the smaller are the economies of scale assumed by the equivalence scale.
When focusing on the dependency between the size of the household and welfare, we
highlight the size of the households' influence on welfare. In fact, other characteristics, as
age, location, health of members, etc., generally affect the scales. But Buhmann et al.
(1988) demonstrate that (19) is a good approximation to most scales currently in use. By
using this approach to household comparability, we are to some extent, able to check the
sensitivity of choice of equivalence scales on our results. Glewwe (1991) demonstrates that
the application of equivalence scales implies efficiency differences in the utilisation of
income between households, which may lead to counterintuitive results. There has been a
recent exchange of views in Economic Journal between Jenkins and Cowell (1994) and
Banks and Johnson (1994) about fitting a 2-parameter extension of Buhmann et al. to UK.

The calculations are made on basis of distributions with same weight on each person,
irrespective of the size of the family to whom they belong (Danziger and Taussig 1979,
Sen 1979).

7. Results

6 See Coulter et al. (1992b) for a discussion of the relation between inequality

measures and equivalence scales relativities.

 21
Table 1 presents estimates for disproportionality for 1991 and 1992 when equivalent
income is defined as income divided by the square root of number of household members,
i.e. 0=0.5. The calculations are done by using a tax-benefit model with data for 1991 and
1992. The different estimates in the table relate to the measure for total disproportionality
and measures for the influences from different parts of the tax system, as demonstrated in
section 5. Table B.1 and table B.2 in appendix B contain similar estimates for different
assumptions about the degree of economies of scale in the households. The tables in
appendix B confirm that the estimates are dependent on choice of equivalence scales, but
the dependency in 1991 is similar to the dependency in 1992.

Table 1. Estimates of total disproportionality and the contribution from different parts of
the tax system for 1991 and 1992. Average figures are in Norwegian kroner. 0=0.5

1991 1992

YT - Gx -= 0.140 = 0.414 - 0.274 = 0.138 = 0.418 - 0.280 =

PyilIT (Gx - Yy ) 147499/46843 (0.274 - 0.229) 155846/45468 (0.280 -
0.239)

YT - Tx' = Ilyi4IT 0.122 = 0.414 - 0.292 = 0.120 = 0.418 - 0.298 =

(7x1 - Yyl) 139578/46843 (0.292 - 0.251) 148062/45468 (0.298 -
0.261)

Yx[ - Gx = 1-1A/11x1 0.018 = 0.292 - 0.274 = 0.018 = 0.298 - 0.280 =

(Gx - ?A) 7921/186421 (0.274 -(-
0.155))
yNT - yxr = istRAINT 0.125 = 0.417 - 0.292 =
(Tx' - la) 155042/31379 (0.292 - 0.267)
7784/193530 (0.280 -(-
0.172))
0.125 = 0.423 - 0.298 =
164828/28702 (0.298 -
0.276)

l'T 1NT = Parith

-
-0.003 = 0.414 - 0.417 = -0.005 = 0.418 - 0.423 =
(Yar - YNT) 15464146843 (0.407 - 0.417) 16766/45468 (0.411 - 0.417)

Wm =
7/s1T - 0.101 = 0.417 - 0.316 = 0.089 = 0.423 - 0.334 =
IIRNAINrr (Wm - 102718/31379 (0.316 - 0.285) 103243/28702 (0.334 -
?RN') 0.310)
I
7/NI - yx[ = gD/1.1rm 0.024 = 0.316 - 0.292 = 0.036 = 0.334 - 0.298 =
(73a - I'D) 52324/121038 (0.292 - 0.231) 61585/131954 (0.298 -
0.220)

Table 1 shows that there is no difference between the tax progressivity in 1991 and 1992.
 22
(yr - Gx ) 1991 is 0.140 while Cyr - Gx ) 1992 is 0.138 and the difference is not statistically
significant.' The inequality in pre-tax income is higher in 1992 than in 1991. But since
taxes also are more unequally distributed, the tax progressivity measured by
disproportionality is more or less the same in 1992 as in 1991.

To demonstrate how the different parts of the tax system contribute to the results in 1991
and 1992, table 2 presents estimates of the impact of tax-free income and taxes for 1991
and 1992, expressed in shares of total disproportionality in per cent for each year. The
influence from taxes and tax-free income components has not changed from 1991 to 1992.
This result is independent of choice of equivalence scale, consult tables in appendix B.
The actual percentage in each year varies according to the assumptions about the degree of
economies of scale, mainly because of sensitivity of several tax-free transfers to the choice
of scale. For instance, the distributional impact of the child benefit is strongly influenced
by the assumptions about the degree of economies of scale.

Table 2. Estimates of the contribution from taxes and tax-free income to total
disproportionality for 1991 and 1992. 0.0.5

Total 1991 1992

disproportionality Decomposition

Tax effect 87% 87%

YT - 11X1
YT - Gx
Tax-free income effect 13% 13%
ïxi - Gx

As revealed in section 5, the relation between tax on gross income and tax on net income
in the decomposition procedure is different from the other decomposition formulations. In
table 3 the relation between net taxes and gross taxes is illustrated by an estimate of the
relative impact of gross taxes in addition to the progressivity already embodied in net
taxes' contribution to disproportionality. Equation (15) in section 5 above, displays that a

7.
Since calculations are done by a tax-benefit model based upon samples of income tax returns, statistical variation must be
brought into consideration. The standard errors have been calculated and as a rule of thumb the standard error is around 0.003.
 23
positive contribution from gross taxes is conditional on yar being larger than yNT .

Table 3. Estimates of the impact of taxes on gross income in relation to the impact of
taxes on net income for 1991 and 1992. 0.0.5

1991 1992
-2%

- yNT)/(YNT - 113a) -4%

Table 3 shows that the influence from taxes on total disproportionality would have
increased by 2 per cent and 4 per cent, respectively for 1991 and 1992, if all taxation had
been imposed in the form of tax on net income. It is important to note that several
deductions in taxes are arbitrarily deducted from net taxes in the accounting system
followed here. Among them is the special tax deduction for pensioners with low income or
limited taxable capacity, which obviously has a progressive effect. Thus, the relation
between the distributional impact of net taxes and gross taxes is to some extent influenced
by the arbitrarily categorisation of tax deductions.

Most important, the results show no reduction in the negative influence from gross taxes
after the reform. This is perhaps surprising, since the tax reform involved the introduction
of the two-tiered tax on higher gross incomes (see section 2). However, the results indicate
that the increase in the standard deductions has maintained the progressivity of net taxes,
in spite of the introduction of a flat proportional tax. There are reasons to believe that the
reduction in the contribution rate to the National Insurance Scheme for self-employed
persons and the increase in the contribution rate for pensioners after the reform has
contributed to less progressivity in gross taxes. It is also worth noting that the special tax
deduction for pensioners with low income made a larger impact in 1992 than in 1991.
Further decomposition of the effect from taxes on gross income would have given
additional information about the different factors behind this result.

A further decomposition of the influences from net taxes, yields measures for the net tax
rate effect and the net tax base effect. In table 4 the estimates of these measures are
presented. The tax reform involved a substantial increase in the standard deduction and a
 24

flat proportional net tax rate instead of the pre-reform progressive tax rate system, which
has given a larger tax base effect and a smaller tax rate effect in 1992 compared to 1991.
This result is also independent of choice of equivalence scale.

Table 4. Estimates of contribution from the tax rate effects and the tax base effects to the
influence on disproportionality from net taxes for 1991 and 1992. 13=0.5

Measure for
contribution to
disproportionality Decomposition 1991 1992
from net taxes

Net tax rate effect 81% 71%

Yisrr - Yx1 Yrrr - YTNI

Net tax base effect 19% 29%

?TN' —Ïxt

8. Conclusion

This paper has focused on progressivity in terms of disproportionality in the tax burden
and it is shown how the measure of disproportionality can be decomposed. When using
this scheme in the evaluation of the distributional impact of the Norwegian tax reform of
1992, it is found that the degree of total disproportionality is unaltered by the reform.
There are no substantial changes in the contribution from tax-free incomes, gross taxes and
net taxes. The decomposition of the influence from net taxes, displays that the tax base
effect is more dominant, and accordingly, the tax rate effect is less dominant after the
reform. This can be explained by the introduction of a flat proportional tax rate on net
income, combined with a substantial increase in the standard deduction.

Further research on progressivity and the Norwegian tax reform should also employ other
measures of progressivity, such as the measure of the redistributive effect. The
redistributive effect involves an index for reranking correction in addition to the measure
of disproportionality. It raises the question of horizontal inequity effects of the tax reform,
which is an important additional perspective.
 25
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 29

Appendix A

Yitzhaki (1983) has suggested the following generalization of the Gini coefficient

(A.1) G(v) = i -v(v-1)f(1 -u) 2 L(u) du

where v is a parameter describing the weight placed on the lowest part of the distribution.There is
one generalized Gini coefficient for each real number v?..1, and v=2 defines the ordinary Gini
coefficient. A high value of v means more focus on the lowest incomes in the distribution.

We can also defme the generalized Gini coefficient in terms of a parametrically weighted Lorenz
area by using covariances (Lambert 1993b):

(A.2) C(v) y IL
VCOV(Xp [1F(Xj)])/

where gx is the average of total income, X. The distribution function F(X) defines the rank of
observation N. The poorest income unit has rank 1/N, the richest has rank 1.

In order to present national figures, weighted observations are used in the analyses of
disproportionality. The estimation of the generalized Gini coefficient, when employing a
weighted data material, is given by Lerman and Yitzhaki (1989). The distribution function and
the covariance in a weighted sample are given by the following terms, respectively:

i-1
(A.3) pc) w. +
i43 .1 2

where we. 0 and

 30

n
(A.4) COV OC, [1 - FOU -1) = E xo
itx -m]
J.,

where

(A3) m =E wo.

Moreover, the concentration coefficient for an income factor can be estimated by a similar
procedure as above. For disposable income the relation is

(A.6) y(v) = -v -coy (Y1,[1 -Fx (;) ]"-iy tLy

where

n
(A.7) cov (Y, [1 - Fx(X)] )=
-1 E (Yi - 'L)RI - Pr' -ml
 31

Appendix B
Table B.1 and table B.2 present measures for disproportionality with different assumptions about
the degree of economies of scale in the households. B.1 and B.2 display measures for 1991 and
1992, respectively.
Table B.1. Estimates of measures of disproportionality with different assumptions about the
degree of economies of scale. 1991

0=0.0 0=0.2 9=0.4 130.6 0=0.8 0=1.0

Ily4IT 3.146 3.146 3.147 3.151 3.155 3.162

(Gx - 7 ) 0.034 0.039 0.043 0.046 0.046 0.044

IT - Gx =1-ty/IIT (Gx - 7) 0.108 0.122 0.135 0.143 0.145 0.139

,
IlyiII-IT 2.959 2.966 2.975 2.985 2.997 3.010

(7x[ - Ifyi) . . 0.033 0.036 0.034 0.042 0.041 0.039

IT - 'Yxi = 1%14T OfX1 - 7YI) 0.097 0.108 0.118 0.124 0.124 0.117
,

ildilxi 0.047 0.045 0.043 0.042 0.040 0.038

,
(Gx -1A) 0.245 0.323 0.389 0.467 0.531 0.571
,
0.012 0.015 0.017 0.019 0.021 0.022
# l'xi - Gx = Ild1-txt (Gx - TA)

PRAINr 4.938 4.937 4.939 4.949 4.949 4.956

(WI - YRI) 0.019 , 0.022 0.024 0.026 0.027 0.026

yNT - iy,a = gRAINT (7x, - yRI) 0.096 0.108 0.120 0.128 0.131 0.127

Par/IIT 0.333 0.332 0.331 0.330 0.328 0.327

(7m' - 7N.r) 0.003 -0.001 -0.006 -0.014 -0.022 -0.028

lifT - YNT = ParilIT ( - 7NT) 0.001 -0.000 -0.002 -0.005 -0.007 -0.009

IÅRNAtNr 3.260 3.265 3.271 3.277 3.283 3.290

(hm - ?RN) 0.025 0.028 0.030 0.032 0.032 0.030

fyNr -711,a=gRN 4INT (ynsoRN) 0.081 0.090 0.098 0.103 0.104 0.100

ildlITNI 0.394 0.392 0.391 0.390 0.389 0.388

(Yxt - 'YD) 0.037 0.047 0.056 0.065 0.069 0.069

71NI - 7X1 = [0117•11 (7X1 - YD) 0.015 0.018 0.022 0.025 0.027 0.027 ,
 32
Table B.2. Estimates of measures of disproportionality with different assumptions about the
degree of economies of scale. 1992

0.0. 9.0.2 0.4 (i0.6 031.8 0.1.

0 0
,
Py/EIT 3.409 3.415 3.423 3.433 3.446 3.460

(Gx - Yy) 0.032 0.036 0.039 0.041 0.041 0.039

l'T - Gx = PIA% (Gx - Yy) 0.109 0.122 0.134 0.142 0.143 0.135
, . ,
i-ISIIT 3.217 3.231 3.247 3.266 3.287 3.309

(Yxr - WI) 0.030 0.034 0.036 0.038 0.037 0.026

'YT - 1x1= RYA% (15a - 7y1) 0.098 0.108 0.117 0.123 0.122 0.086
, ,
IlAhlxr 0.046 0.043 0.041 0.039 0.037 0.035

(Gx - 'IA) 0.256 0.327 0.409 0.492 0.564 0.612

1/Xf -- Gx =1-tAillxi (Gx - TA) 0.012 0.014 0.017 0.019 0.021 0.022
,
PRAINr 5.710 5.721 5.735 5.752 5.771 5.794

(7x1 - I'm) 0.017 0.019 0.021 0.022 0.023 0.013

yNT - yxi = pRigNr (yxt - 'Thi) 0.096 0.108 0.120 0.129 0.131 0.127

PST 0.372 0.371 0.370 0.368 0.367 0.366

(Yar - 1•Nr) 0.004 -

0.000 0.007 0.016 0.027 0.035

fr -- YNr = liaril-iT (Yar - ?NO

l 0.002 -
0.000 0.003 0.006 0.010 0.013
,.
IÅRNAINr 3.566 3.578 3.590 3.604 3.620 3.637

(YIN - ?RN') 0.019 0.021 0.024 0.025 0.026 0.025

1NT - yrm = tiRNAINr (y.rm -7Rm) 0.069 0.077 0.085 0.091 0.094 0.091

IldlITNI 0.470 0.468 0.467 0.466 0.466 0.465

(Txt - YD) 0.059 0.067 0.075 0.080 0.080 0.068

YrNa - 'ha = ildilim (Yx[ - YD) 0.028 0.032 0.035 0.037 0.037 0.031
 33
Issued in the series Discussion Papers
No. 1 I. Aslaksen and O. Bjerkholt (1985): Certainty Equiva-
lence Procedures in the Macroeconomic Planning of an
Oil Economy
No. 3 E. Bjø rn (1985): On the Prediction of Population Totals
from Sample surveys Based on Rotating Panels
No. 4 P. Frenger (1985): A Short Run Dynamic Equilibrium
Model of the Norwegian Production Sectors
No. 5 I. Aslaksen and O. Bjerkholt (1985): Certainty Equiva-
lence Procedures in Decision-Making under Uncertain-
ty: An Empirical Application
No. 6 E. Bjørn (1985): Depreciation Profiles and the User
Cost of Capital
No. 7 P. Frenger (1985): A Directional Shadow Elasticity of
Substitution
No. 8 S. Longva, L. Lorentsen and Ø. Olsen (1985): The
Multi-Sectoral Model MSG-4, Formal Stmcture and
Empirical Characteristics
No. 9 J. Fagerberg and G. Sollie (1985): The Method of
Constant Market Shares Revisited
No. 10 E. Bjørn (1985): Specification of Consumer Demand
Models with Stochastic Elements in the Utility Func-
tion and the first Order Conditions
No. 11 E. Biom, E. Holmoy and 0. Olsen (1985): Gross and
Net Capital, Productivity and the form of the Survival
Function. Some Norwegian Evidence
No. 12 J.K. Dagsvik (1985): Markov Chains Generated by
Maximizing Components of Multidimensional Extremal
Processes
No. 13 E. Bjørn, M. Jensen and M. Reymert (1985): KVARTS
- A Quarterly Model of the Norwegian Economy
No. 14 R. Aaberge (1986): On the Problem of Measuring In-
equality
No. 15 A.-M. Jensen and T. Schweder (1986): The Engine of
Fertility - Influenced by Interbilth Employment
No. 16 E. Bjørn (1986): Energy Price Changes, and Induced
Scrapping and Revaluation of Capital - A Putty-Clay
Model
No. 17 E. Bjørn and P. Frenger (1986): Expectations, Substi-
tution, and Scrapping in a Putty-Clay Model
No. 18 R. Bergan, Å. Cappelen, S. Longva and N.M. Solen
(1986): MODAG A - A Medium Term Annual Macro-
economic Model of the Norwegian Economy
No. 19 E. BiOnz and H. Olsen (1986): A Generalized Single
Equation Error Correction Model and its Application to
Quarterly Data
No. 20 K.H. Alfsen, D.A. Hanson and S. GlomsrOd (1986):
Direct and Indirect Effects of reducing SO 2 Emissions:
Experimental Calculations of the MSG-4E Model
No. 21 J.K. Dagsvik (1987): Econometric Analysis of Labor
Supply in a Life Cycle Context with Uncertainty
No. 22 K.A. Brekke, E. Gjelsvik and B.H. Vatne (1987): A
Dynamic Supply Side Game Applied to the European
Gas Market
No. 23 S. Bartlett, J.K. Dagsvik, ø. Olsen and S. Strøm
(1987): Fuel Choice and the Demand for Natural Gas
in Western European Households
No. 24 J.K. Dagsvik and R. Aaberge (1987): Stochastic Prop-
miles and Functional Forms of Life Cycle Models for
Transitions into and out of Employment
No. 25 T.J. Klette (1987): Taxing or Subsidising an Exporting
Industry
No. 26 K.J. Berger, O. Bjerkholt and Ø. Olsen (1987): What
are the Options for non-OPEC Countries
No. 27 A. Aaheim (1987): Depletion of Large Gas Fields
with Thin Oil Layers and Uncertain Stocks
No. 28 J.K. Dagsvik (1987): A Modification of Heckman's
Two Stage Estimation Procedure that is Applicable
when the Budget Set is Convex
No. 29 K. Berger, Å. Cappelen and I. Svendsen (1988): In-
vestment Booms in an Oil Economy - The Norwegian
Case
No. 30 A. Rygh Swensen (1988): Estimating Change in a Pro-
portion by Combining Measurements from a True and
a Fallible Classifier
No. 31 J.K. Dagsvik (1988): The Continuous Generalized
Extreme Value Model with Special Reference to Static
Models of Labor Supply
No. 32 K. Berger, M. Hoel, S. Holden and Ø. Olsen (1988):
The Oil Market as an Oligopoly
No. 33 LAK. Anderson, J.K. Dagsvik, S. Strøm and T.
Wennemo (1988): Non-Convex Budget Set, Hours
Restrictions and Labor Supply in Sweden
No. 34 E. Holm)) and Ø. Olsen (1988): A Note on Myopic
,
Decision Rules in the Neoclassical Theory of Producer
Behaviour, 1988
No. 35 E. BiOrn and H. Olsen (1988): Production - Demand
Adjustment in Norwegian Manufacturing: A Quarterly
Error Correction Model, 1988
No. 36 J.K. Dagsvik and S. Strøm (1988): A Labor Supply
Model for Married Couples with Non-Convex Budget
Sets and Latent Rationing, 1988
No. 37 T. Skoglund and A. Stokka (1988): Problems of Link-
ing Single-Region and Multiregional Economic
Models, 1988
No. 38 T.J. Klette (1988): The Norwegian Aluminium Indu-
stry, Electricity prices and Welfare, 1988
No. 39 I. Aslaksen, O. Bjerkholt and K.A. Brekke (1988): Opti-
mal Sequencing of Hydroelectric and Thermal Power
Generation under Energy Price Uncertainty and De-
mand Fluctuations, 1988
No. 40 0. Bjerkholt and K.A. Brekke (1988): Optimal Starting
and Stopping Rules for Resource Depletion when Price
is Exogenous and Stochastic, 1988
No. 41 J. Aasness, E. Bjørn and T. Skjerpen (1988): Engel
Functions, Panel Data and Latent Variables, 1988
No. 42 R. Aaberge, Ø. Kravdal and T. Wennemo (1989): Un-
observed Heterogeneity in Models of Marriage Dis-
solution, 1989
 34
No. 43 K.A. Mork., H.T. Mysen and Ø. Olsen (1989): Business
Cycles and Oil Price Fluctuations: Some evidence for
six OECD countries. 1989
No. 44 B. Bye, T. Bye and L. Lorentsen (1989): SIMEN. Stud-
ies of Industry, Environment and Energy towards 2000,
1989
No. 45 O. Bjerkholt, E. Gjelsvik and Ø. Olsen (1989): Gas
Trade and Demand in Northwest Europe: Regulation,
Bargaining and Competition
No. 46 L.S. Stambøl and K.O. Sørensen (1989): Migration
Analysis and Regional Population Projections, 1989
No. 47 V. Christiansen (1990): A Note on the Short Run Ver-
sus Long Run Welfare Gain from a Tax Reform, 1990
No. 48 S. Glonisrød, H. Vennemo and T. Johnsen (1990):
Stabilization of Emissions of CO 2 : A Computable
General Equilibrium Assessment, 1990
No. 49 J. Aasness (1990): Properties of Demand Functions for
Linear Consumption Aggregates, 1990
No. 50 J.G. de Leon (1990): Empirical EDA Models to Flt and
Project Time Series of Age-Specific Mortality Rates,
1990
No. 51 J.G. de Leon (1990): Recent Developments in Parity
Progression Intensities in Norway. An Analysis Based
on Population Register Data
No. 52 R. Aaberge and T. Wennemo (1990): Non-Stationary
Inflow and Duration of Unemployment
No. 53 R. Aaberge, J.K. Dagsvik and S. Strøm (1990): Labor
Supply, Income Distribution and Excess Burden of
Personal Income Taxation in Sweden
No. 54 R. Aaberge, J.K. Dagsvik and S. Strøm (1990): Labor
Supply, Income Distribution and Excess Burden of
Personal Income Taxation in Norway
No. 55 H. Vennemo (1990): Optimal Taxation in Applied
General Equilibrium Models Adopting the Annington
Assumption
No. 56 N.M. Stølen (1990): Is there a NAIRU in Norway?
No. 57 Å. Cappelen (1991): Macroeconomic Modelling: The
Norwegian Experience
No. 58 J.K. Dagsvik and R. Aaberge (1991): Household Pro-
duction, Consumption and Time Allocation in Peru
No. 59 R. Aaberge and J.K. Dagsvik (1991): Inequality in
Distribution of Hours of Work and Consumption in
Peru
No. 60 T.J. Klette (1991): On the Importance of R&D and
Ownership for Productivity Growth. Evidence from
Norwegian Micro-Data 1976-85
No. 61 K.H. Alfsen (1991): Use of Macroeconomic Models in
Analysis of Environmental Problems in Norway and
Consequences for Environmental Statistics
No. 62 If. Vennemo (1991): An Applied General Equilibrium
Assessment of the Marginal Cost of Public Funds in
Norway
No. 63 H. Vennemo (1991): The Marginal Cost of Public
Funds: A Comment on the Literature
No. 64 A. Brendemoen and H. Vennemo (1991): A climate
convention and the Norwegian economy: A CGE
assessment
No. 65 K.A. Brekke (1991): Net National Product as a Welfare
Indicator
No. 66 E. Bowitz and E. Storm (1991): Will Restrictive De-
mand Policy Improve Public Sector Balance?
No. 67 Å. Cappelen (1991): MODAG. A Medium Term
Macroeconomic Model of the Norwegian Economy
No. 68 B. Bye (1992): Modelling Consumers' Energy Demand
No. 69 K.H. Alfsen, A. Brendemoen and S. Glomsrød (1992):
Benefits of Climate Policies: Some Tentative Calcula-
tions
No. 70 R. Aaberge, Xiaojie Chen, Jing Li and Xuezeng Li
(1992): The Structure of Economic Inequality among
Households Living in Urban Sichuan and Liaoning,
1990
No. 71 K.H. Alfsen, K.A. Brekke, F. Brunvoll, H. Lurås, K.
Nyborg and H.W. Sæbø (1992): Environmental Indi-
cators
No. 72 B. Bye and E. Holmøy (1992): Dynamic Equilibrium
Adjustments to a Terms of Trade Disturbance
No. 73 O. Aukrust (1992): The Scandinavian Contribution to
National Accounting
No. 74 J. Aasness, E. Eide and T. Skjerpen (1992): A Crimi-
nometric Study Using Panel Data and Latent Variables
No. 75 R. Aaberge and Xuezeng Li (1992): The Trend in
Income Inequality in Urban Sichuan and Liaoning,
1986-1990
No. 76 J.K. Dagsvik and S. Strøm (1992): Labor Supply with
Non-convex Budget Sets, Hours Restriction and Non-
pecuniary Job-attributes
No. 77 J.K. Dagsvik (1992): Intertemporal Discrete Choice,
Random Tastes and Functional Form
No. 78 H. Vennemo (1993): Tax Reforms when Utility is
Composed of Additive Functions
No. 79 J.K. Dagsvik (1993): Discrete and Continuous Choice,
Max-stable Processes and Independence from Irrelevant
Attributes
No. 80 J.K. Dagsvik (1993): How Large is the Class of Gen-
eralized Extreme Value Random Utility Models?
No. 81 H. Birkelund, E. Gjelsvik, M. Aaserud (1993): Carbon/
energy Taxes and the Energy Market in Western
Europe
No. 82 E. Bowitz (1993): Unemployment and the Growth in
the Number of Recipients of Disability Benefits in
Norway
No. 83 L. Andreassen (1993): Theoretical and Econometric
Modeling of Disequilibrium
No. 84 K.A. Brekke (1993): Do Cost-Benefit Analyses favour
Environmentalists?
No. 85 L. Andreassen (1993): Demographic Forecasting with a
Dynamic Stochastic Microsimulation Model
No. 86 G.a. Asheim and K.A. Brekke (1993): Sustainability
when Resource Management has Stochastic Conse-
quences
No. 87 O. Bjerkholt and Yu Zhu (1993): Living Conditions of
Urban Chinese Households around 1990
 35
No. 88 R. Aaberge (1993): Theoretical Foundations of Lorenz
Curve Orderings
No. 89 J. Aasness, E. &Om and T. Skjerpen (1993): Engel
Functions, Panel Data, and Latent Variables - with
Detailed Results
No. 90 I. Svendsen (1993): Testing the Rational Expectations
Hypothesis Using Norwegian Microeconomic
DataTesting the REH. Using Norwegian Micro-
economic Data
No. 91 E. Bowitz, A. ROdseth and E. Storm (1993): Fiscal
Expansion, the Budget Deficit and the Economy: Nor-
way 1988-91
No. 92 R. Aaberge, U. Colombino and S. StrOm (1993):
Labor Supply in Italy
No. 93 T.J. Klette (1993): Is Price Equal to Marginal Costs?
An Integrated Study of Price-Cost Margins and Scale
Economies among Norwegian Manufacturing Estab-
lishments 1975-90
No. 94 J.K. Dagsvik (1993): Choice Probabilities and Equili-
brium Conditions in a Matching Market with Flexible
Contracts
No. 95 T. Kornstad (1993): Empirical Approaches for Ana-
lysing Consumption and Labour Supply in a Life Cycle
Perspective
No. 96 T. Kornstad (1993): An Empirical Life Cycle Model of
Savings, Labour Supply and Consumption without
Intertemporal Separability
No. 97 S. Kverndokk (1993): Coalitions and Side Payments in
International CO 2 Treaties
No. 98 T. Eika (1993): Wage Equations in Macro Models.
Phillips Curve versus Error Correction Model Deter-
mination of Wages in Large-Scale UK Macro Models
No. 99 A. Brendemoen and H. Vennemo.(1993): The Marginal
Cost of Funds in the Presence of External Effects
No. 100 K.-G. Lindquist (1993): Empirical Modelling of Nor-
wegian Exports: A Disaggiegated Approach
No. 101 A.S. Jore, T. Skjerpen and A. Rygh Swensen (1993):
Testing for Purchasing Power Parity and Interest Rate
Parities on Norwegian Data
No. 102 R. Nesbakken and S. StrOm (1993): The Choice of
Space Heating System and Energy Consumption in
Norwegian Households (Will be issued later)
No. 103 A. Aaheim and K. Nyborg (1993): "Green National
Product": Good Intentions, Poor Device?
No. 104 K.H. Alfsen, H. Birkelund and M. Aaserud (1993):
Secondary benefits of the EC Carbon/ Energy Tax
No. 105 J. Aasness and B. Holtsmark (1993): Consumer
Demand in a General Equilibrium Model for Environ-
mental Analysis
No. 106 K-G. Lindquist (1993): The Existence of Factor Sub-
stitution in the Primary Aluminium Industry: A
Multivariate Error Correction Approach on Norwegian
Panel Data
No. 107 S. Kverndokk (1994): Depletion of Fossil Fuels and the
Impacts of Global Warming
No. 108 K.A. Magnussen (1994): Precautionary Saving and Old-
Age Pensions
No. 109 F. Johansen (1994): Investment and Financial Con-
straints: An Empirical Analysis of Norwegian Firms
No. 110 K.A. Brekke and P. BOring (1994): The Volatility of
Oil Wealth under Uncertainty about Parameter Values
No. 111 M.J. Simpson (1994): Foreign Control and Norwegian
Manufacturing Performance
No .112 Y. Willassen and T.J. Klette (1994): Correlated
Measurement Errors, Bound on Parameters, and a
Model of Producer Behavior
No. 113 D. Wetterwald (1994): Car ownership and private car
use. A microeconometric analysis based on Norwegian
data
No. 114 K.E. Rosendahl (1994): Does Improved Environmental
Policy Enhance Economic Growth? Endogenous
Growth Theory Applied to Developing Countries
No. 115 L. Andreassen, D. Fredriksen and O. Ljones (1994):
The Future Burden of Public Pension Benefits. A
Microsimulation Study
No. 116 A. Brendemoen (1994): Car Ownership Decisions in
Norwegian Households.
No. 117 A. LangOrgen (1994): A Macromodel of Local Govern-
ment Spending Behaviour in Norway
No. 118 K.A. Brekke (1994): Utilitarism, Equivalence Scales
and Logarithmic Utility
No. 119 K.A. Brekke, H. Lards and K. Nyborg (1994):
Sufficient Welfare Indicators: Allowing Disagreement
in Evaluations of Social Welfare
No. 120 T.J. Klette (1994): R&D, Scope Economies and Com-
pany Structure: A "Not-so-Fixed Effect" Model of
Plant Performance
No. 121 Y. Willassen (1994): A Generalization of Hall's Speci-
fication of the Consumption function
No. 122 E. HolmOy, T. Hageland and Ø. Olsen (1994):
Effective Rates of Assistance for Norwegian Industries
No. 123 K. Mohn (1994): On Equity and Public Pricing in
Developing Countries
No. 124 J. Aasness, E. Eide and T. Skjerpen (1994):
Criminometrics, Latent Variables, Panel Data, and
Different Types of Crime
No. 125 E. BiOrn and T.J. Klette (1994): Errors in Variables
and Panel Data: The Labour Demand Response to
Permanent Changes in Output
No. 126 I. Svendsen (1994): Do Norwegian Finns Form
Exptrapolative Expectations?
No. 127 T.J. Klette and i Griliches (1994): The Inconsistency
of Common Scale Estimators when Output Prices are
Unobserved and Endogenous
No. 128 K.E. Rosendahl (1994): Carbon Taxes and the
Petroleum Wealth
No. 129 S. Johansen and A. Rygh Swensen (1994): Testing
Rational Expectations in Vector Autoregressive Models
No. 130 T.J. Klette (1994): Estimating Price-Cost Margins and
Scale Economies from a Panel of Microdata
No. 131 L. A. Grünfeld (1994): Monetary Aspects of Business
Cycles in Norway: An Exploratory Study Based on
Historical Data
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No. 132 K.-G. Lindquist (1994): Testing for Market Power in
the Norwegian Primary Aluminium Industry
No. 133 T. J. Klette (1994): R&D, Spillovers and Performance
among Heterogenous Firms. An Empirical Study Using
Microdata
No. 134 K.A. Brekke and H.A. Gravningsmyhr (1994):
Adjusting NNP for instrumental or defensive
expenditures. An analytical approach
No. 135 TO. Thoresen (1995): Distributional and Behavioural
Effects of Child Care Subsidies
No. 136 T. J. Klette and A. Mathiassen (1995): Job Creation,
Job Destruction and Plant Turnover in
Norwegian Manufacturing
No. 137 K. Nyborg (1995): Project Evaluations and Decision
Processes
No. 138 L Andreassen (1995): A Framework for Estimating
Disequilibrium Models with Many Markets
No. 139 L Andreassen (1995): Aggregation when Markets do
not Clear
No. 140 T. Skjerpen (1995): Is there a Business Cycle
Component in Norwegian Macroeconomic Quarterly
Time Series?
No. 141 J.K. Dagsvik (1995): Probabilistic Choice Models for
Uncertain Outcomes
No. 142 M. Ronsen (1995): Maternal employment in Norway,
A parity-specific analysis of the return to full-time and
part-time work after birth
No. 143 A. Bruvoll, S. GlomsrOd and H. Vennemo (1995): The
Environmental Drag on Long- term Economic Perfor-
mance: Evidence from Norway
No. 144 T. Bye and T. A. Johnsen (1995): Prospects for a Corn-
mon Deregulated market
No. 145 B. Bye (1995): A Dynamic Equilibrium Analysis of a
Carbon Tax
No. 146 T. O. Thoresen (1995): The Distributional Impact of
the Norwegian Tax Reform Measured by Dispropor-
tionality
Discussion Papers

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